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Tuesday, September 29, 2009

As the Seattle Times reported this morning, the chorus of officials urging people to buy flood coverage if they live below Howard Hanson dam has had a predictable-if-unfortunate effect: scaring insurers out of the market.

The Army Corps of Engineers has said that a weakened abutment on one side of the dam may force the corps to spill more water than usual to protect the weakened dam during the rainy season. (The dam itself is not believed to be at any risk for failure.) For homeowners and businesses in parts of the Green River Valley, that means a significantly higher risk of flooding.

What to do? First, contact an agent to get flood coverage under the National Flood Insurance Program, a federal plan with policies written by private insurers. And do it now. The coverage doesn't take effect until 30 days after the policy is written, and flood season starts Nov. 1.

As the Times noted, however, the situation is pretty bleak for many of the businesses downstream from the dam. The federal flood coverage only covers up to $500,000 for the building and $500,000 for contents. In the industry-heavy valley, some of the machinery alone could be worth more than that.

At this point -- with the fall rains starting -- the best option for businesses is to talk to their agents and brokers about finding "surplus lines" or "excess" coverage. This is a sector of the market that our office does not regulate. It will be hard to find coverage, and it now may be very expensive. One broker our office talked to yesterday saw a quote mushroom from $30,000 to $150,000. And a big complication is the fact that government flood-risk maps have apparently not yet been updated to account for the potential increased spillage from the dam. Worse, many non-government flood policies exclude a loss caused by an act of government.

There's one bit of good news. If you can find (and afford) the extra flood coverage, the policies typically do not have a 30-day waiting period like the federal coverage does.

But there's no avoiding the fact that it's a very tough situation for property owners below the dam. We cannot force insurers to cover a known risk. One surplus lines official I spoke to this morning compared the situation to someone standing beside a haystack with a match and asking if anyone wanted to write hay coverage. While that may be an exaggeration -- the risk of flooding below the dam is believed to be less than one in three -- it's clear that insurers are skittish about writing new policies in the area now.

Also, home- and business owners should try to mitigate the threat. Move key documents and computer equipment upstairs, if possible. If it's practical to raise machinery on a platform, consider that. And make contingency plans for how to keep the business running.

Also, King County is reportedly developing plans to try to steer floodwaters into parking lots, ballfields and agricultural land where possible, using a series of temporary levees.

A radio reporter asked me this morning if it was a mistake for Corps, state and local officials to repeatedly urge Green River Valley residents to buy flood coverage, seeing as how the insurance market has reacted. But given the alternative -- trying to hush up the risk for fear of spooking the market -- disclosure clearly seems like the best course. And some insurers were aware of the risk months ago. Mutual of Enumclaw, for example, sent out letters in mid-March urging its homeowners' policy holders to look into federal flood coverage.